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Securitized Products, Financial Regulation, and Systemic Risk

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  • Mariko Fujii

    (Asian Development Bank Institute)

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    Abstract

    It is widely believed that the practice of securitization is one of the causes that led to the 200708 financial crisis. In this paper, I show that securitized products such as collateralized debt obligations (CDO) are particularly vulnerable to systematic risk and tend to show higher tail risk. These characteristics, in turn, are closely associated with joint failures and systemic risk. In order to achieve greater stability of the financial system, it is important to prevent the recurrence of the collapse of specific markets as this may lead to the collapse of other components of the financial system. From this perspective, the financial regulations that should be applied to these problematic financial products and their relation to possible systemic risks are discussed.

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    File URL: http://www.eaber.org/node/23010
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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 23010.

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    Date of creation: Jan 2010
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    Handle: RePEc:eab:financ:23010

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    Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
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    Related research

    Keywords: secirotozation; CDO; financial crisis; financial regulations; systemic risk;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Joshua Aizenman, 2009. "Financial Crisis and the Paradox of Under- and Over-Regulation," NBER Working Papers, National Bureau of Economic Research, Inc 15018, National Bureau of Economic Research, Inc.
    2. Francis A. Longstaff & Arvind Rajan, 2006. "An Empirical Analysis of the Pricing of Collateralized Debt Obligations," NBER Working Papers, National Bureau of Economic Research, Inc 12210, National Bureau of Economic Research, Inc.
    3. Peter M. DeMarzo, 2005. "The Pooling and Tranching of Securities: A Model of Informed Intermediation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 18(1), pages 1-35.
    4. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 606-10, May.
    5. Efraim Benmelech & Jennifer Dlugosz, 2009. "The Alchemy of CDO Credit Ratings," NBER Working Papers, National Bureau of Economic Research, Inc 14878, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Peter J. Morgan & Mario Lamberte, 2012. "Strengthening Financial Infrastructure," Finance Working Papers, East Asian Bureau of Economic Research 23191, East Asian Bureau of Economic Research.

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